Market revives housing

California's once-depressed housing market seems to have turned on a dime, as soaring prices, multiple offers and a burgeoning homebuilding market have dispersed the gloom over the foreclosure crisis and upside-down mortgages. Don't expect to grab a great bargain on a distressed property these days, especially in booming Orange County.

“After bottoming out in 2008, Orange County housing prices stabilized in mid-2012,” Southern California Public Radio reported, following a Cal State Fullerton economic report last month. “Since then, prices have risen steadily, and are now up 30 percent from their lows. The outlook is for annual price appreciation of 7 percent to 10 percent.”

While sought-after areas in Southern California and the Bay Area have shown the most remarkable increases, even formerly depressed inland markets are doing well.

This is a good time to absorb some policy lessons. The foreclosure crisis is over – not because of any bailout policies enacted by government, but because markets are resilient and can turn around if left mainly to their own devices.

For instance, California's housing revival is coming much more quickly than that in Florida, which also was hit hard by foreclosures. Florida's litigation-friendly foreclosure law assures that the foreclosure process is tied up in litigation, which slows the pipeline for those properties to return to market.

Furthermore, a recent article in the Sacramento News and Review reported that sellers of remaining foreclosures – often banks – are disregarding offers by those who need to finance their purchases in favor of the offers from investors paying cash. Big corporate investors, in fact, have been invading some of the lower-cost California markets and buying up hundreds of properties. This makes the market especially difficult for first-time homeowners and tilts it toward renters.

This is an unintended consequence of the many rules and loan requirements that regulators imposed on banks as a way to protect buyers from themselves. The new rules make the loan process so cumbersome and uncertain that sellers prefer, quite naturally, the quick-and-easy process of cash purchases. That's something to keep in mind as officials ponder additional regulations.

The bursting six years ago of California's housing bubble was caused, in part, by government interference. It wasn't just the easy credit promoted by federal laws designed to expand access to homeownership by those with lower incomes and little cash. California's land-use restrictions make it so time-consuming and difficult to get building approvals that they delayed the ability of homebuilders to react to inflated market demand. That caused prices to soar and assured a harder fall.

The basic lesson from these housing ups and downs, and ups, is that it's best to let the market sort things out. Government interference only exacerbates problems and leads to unintended consequences. Now, with the market regaining strength, let's hope legislators and regulators have learned a thing or two.

Note: The Orange County Forum will release its housing outlook Wednesday.